So, as I've stated in a different post, I'm working with making an arduino system that's practically an led control kit. I also found online that the ATmega4 and ATmega8 performs the same as a 328 as far as speed, power consumption, etc. I was just wondering is there any reason an ATmega4/8 can't run arduino? The main reason I ask is, because I'm not too worried about 8kb of space on the ATmega8 being to small (most programs that I'd be writing to it would be at most 100 lines) compared to the 328' 32kb (... I now get the naming convention of the 328.... XD), I am kind of worried about the 4kb of the Atmega4, with the bootloader on it. I don't think the application of turning on and off leds is very ram intensive, so the extra 1kb ram from the 8 isn't really needed (script doesn't use many variables either).
So... O-o I guess what I'm asking, is the ATmega4/8 compatible with arduino?
The main reason I ask is because an ATmega4 is only $1.77, ATmega8 is only $2.30 where as the 328 is $3.42 (all surface mount, all not pre-programmed, from mouser). Sure, in the short term, it isn't that much of a difference in cost, but the cheaper I can make my own chips, the more neat little toys I can make

. I think my total build cost per unit would be less then $5 per unit if I can just use the ATmega8, and possibly even less then $4 with the ATmega4.
Are there any other cheaper alternative chips like these that do work with the arduino bootloader?
(>_< sorry for the two different posts so quickly together, but they aren't really all that related)